purposes of estimating the tax expenditure, data pertaining to these 5,02,141 firms/AOPs/BOIs was culled out from the database

of the Income-tax Department. They account for a substantial part of the tax paid by the universe of firms/AOPs/BOIs in financial

year 2010-11.

The data was analysed and the following facts emerged:-

• The sample firms/AOPs/BOIs reported ` 70,880 crore as profits before taxes (losses were reported by about 8.63 per

cent of the sample) and declared a total income (taxable income) of ` 57,726 crore for the financial year 2010-11.

• These sample firms/AOPs/BOIs reported ` 17,134 crore as income tax payable [inclusive of education cess] for the

financial year 2010-11 . The effective tax rate

5

in their case works out to 24.17 per cent.

The tax forgone on each tax concession claimed by the sample firms/AOPs/BOIs has been calculated by applying the income

tax rate of 30.90 per cent on the amount of each deduction. The revenue forgone on account of accelerated depreciation,

deduction/weighted deduction for expenditure on scientific research and deduction for expenditure on eligible projects/schemes

for social and economic uplift of the public has been calculated by first determining the difference between the depreciation/

deduction debited to the profit and loss accounts by firms/AOPs/BOIs and the depreciation/deduction allowable under the Incometax Act. Thereafter, the income tax rate of 30.90 per cent has been applied to this difference to arrive at the revenue forgone figure.

Though the sample firms/AOPs/BOIs account for 90 per cent of all such entities in terms of taxes paid, the revenue forgone on

account of these sample firms/AOPs/BOIs has been taken to be the total revenue forgone in the non-corporate sector. To this

extent the revenue forgone may be a slight underestimate.

Based on the revenue forgone figures for financial year 2010-11, the revenue forgone for the financial year 2011-12 has

been estimated. The estimation for 2011-12 has been done by multiplying the revenue forgone on each tax incentive in 2010-11

by the projected growth in tax collections from firms/AOPs/BOIs in 2011-12. Table 6 depicts the major tax expenditures on noncorporate taxpayers in terms of revenue forgone during the financial years 2010-11 and 2011-12 . The highest tax expenditure,

by far, is from claims of deduction of profits of undertakings derived from Housing Projects which accounts for 31.59 % of the total

revenue forgone.

Table 6 : Major tax expenditure on sample firms/AOPs/BOIs during

financial years 2010-11 and 2011-12 [sample size – 502141]

Sl. Nature of incentive Revenue Projected

No. Forgone Revenue

(in ` Crore) Forgone

[2010-11] (in ` Crore)

[2011-12]

1 Deduction of export profits of STPI units (section 10A) 119 Nil*

2 Deduction of export profits of EHTP units (section 10A) Nil Nil*

3 Deduction of export profits of units located in SEZs (section 10A and 10AA) 354 412

number of individual taxpayers for financial year 2010-11 is estimated to be 3,08,14,135 by assuming a growth rate of

5% over the estimate of the previous year which was 2,93,46,795. According to the sample returns, 5.53 per cent were

filed by senior citizens and 25.95 per cent of the balance returns were filed by women (other than senior citizens).

Further, the revenue forgone on account of a senior citizen and woman [who is not a senior citizen] has been calculated

by taking into account the difference between the higher basic exemption limits [` 2,40,000 and ` 1,90,000 respectively]

as compared to the general exemption limit of ` 1,60,000 and applying the lowest tax rate of 10% (plus cess) on the

difference. Thereafter, the revenue forgone on account of each such taxpayer has been projected on the total estimate of

the number of such tax payers.

(ii) Specifically, in the case of deduction under section 80-IA, 80-IAB, 80-IB and 80-IC (Sr. No. 12 to15 of table 7) the revenue

forgone has been calculated on the assumption that these figures reflect the total claims made by individuals under these

sections as all tax audited returns for income of F.Y. 2010-11 were subject to compulsory e-filing.

(iii) In all other cases, the revenue forgone for the entire population of taxpayers is worked out bya) First calculating the average revenue forgone for a particular incentive per taxpayer for each income slab which has

a separate tax rate in the sample returns.

(b) Secondly, multiplying this by the estimated total number of individual taxpayers in that income slab for financial year

2010-11.

This gives the revenue forgone for that income slab for a particular incentive. The sum of the revenue forgone for all the slabs

gives the revenue forgone for the entire population on account the particular tax incentive.

(iv) Based on the revenue forgone figures for financial year 2010-11, the revenue forgone during the financial year 2011-

12 has been estimated. This estimation has been done by multiplying the revenue forgone on each tax incentive in 2010-

11 by the projected growth in tax collections from individual taxpayers in 2011-12.

As detailed above, table 7 depicts the major tax expenditures on individual taxpayers in terms of revenue forgone during